Growth recovery remains feeble

S. Sethuraman

India’s stagnant economy will be entering fiscal 2019 on the back of relatively poorer performance for two successive years (FY16-18), and well below 7 per cent growth in real terms in fiscal 18, amid global headwinds of market volatility, rising inflation and interest rate hikes charted by US Fed. Can we smartly overcome all these to let growth shine at 7.5 percent in the new fiscal year and rightly claim the tag of fastest-growing economy, not gloating over a single quarter growth recovery?
The latest economic data on the third quarter of 2017/18, not signalling a bottoming out of a secular slowdown, is analysed below. But there are far more imponderables in 2018, economic as well as political. There remain several risks.  Externally, confidence in India’s ability to get out of a scam-ridden phase of economic management, secure financial system stability and promote growth-friendly reforms is waning. Secondly, there are possible capital outflows arising from monetary tightening abroad. Thirdly, whether India can seize up opportunities to do far better in global trade expansion.
Nor its poll-oriented Budget has perceptibly shifted the electoral scenario in its favour, from one of rising disenchantment among the people in general, unemployed youth in particular, over a record of jobless growth and unrelieved farm distress. Even as the Prime Minister can work his magic on top of mounting strident attacks against the Congress, which is reviving under the leadership of Mr Rahul Gandhi and making gains to throw a challenge to BJP in 2019 Lok Sabha poll, Mr Modi will not take undue risks.
More populism will now be on display, like a Social Security Scheme for 500 million workers, to cover entire work force. Much has already been made of the unfunded national health scheme (NHS) announced in the poll-oriented Budget for2018/19. Unpredictable as he is, with all authority of Government vested in him. Mr Modi is still capable of springing some surprises, without causing disruptive fall-outs, as was the case with his demonetisation in November 2016. That brought into question the credibility of the country’s monetary authority, Reserve Bank of India, and now the PNB fraud, hitting the face of NDA Government, has also shaken the people’s confidence in our state-owned banking system.
Whatever the brisk follow-up by way of declaring fraudsters, diamond jewellers Nirav Modi and Mehul Choksi, who fled the country, as “fugitive economic offenders” and enacting a law to confiscate all their assets being seized countrywide, PNB fraud has exposed the hollowness of BJP claims of scam-free governance unlike the Congress-led UPA Government. The Modi Government agencies are also engaged in “political vendatta” against its adversaries, Congress sources have charged.
Taking an overall view of negative trends in the evolving political situation and limiting losses in Lok Sabha seats and voting shares for the ruling BJP for its continued dominance at the Centre, Prime Minister Modi’s idea of holding elections for the Centre and States (where due in 2018/19) has now become a distinct possibility.
Apparently, the calculations are that BJP cannot be certain that it could wrest Karnataka from the Congress while the latter is also resurgent in Rajasthan and Madhya Pradesh. A snap poll by turn of the year is considered likely, even if necessary, according to reports, by extending the term of Congress-ruled Karnataka till then. The timing of such an advance poll is Prime Minister’s prerogative.
The CSO economic data for third quarter (October-December) of FY 2017/18 released on February 28 indicate GDP growth at 7.2 percent (6.5 in II quarter) while GVA (Gross Value Added) is 6.7 per cent as against 6.2 per cent in the II quarter. This over 7 per cent growth after several quarters has made the Finance Ministry jubilant enough to tout fastest-growth tag.
While the overall picture of third quarter may be encouraging, CSO’s Advance Estimates for the full year are currently placed at GDP 6.6 and GVA 6.4 per cent. These are lower than the MPC/RBI estimate at 6.7 per cent. The 2016/17 growth was 7.1 per cent GDP/GVA. These 2017/18 estimates of GDP/GVA can vary when the IV quarter (Jan-March) data become available by end of May..
The third quarter GDP increase to 7.2 per  cent over 6.5 per cent in the earlier quarter is attributable to segment-wise increases over II quarter in agriculture, manufacturing, construction and Public Administration (Government spending providing a boost)). Private final consumption expenditure shows some increase over the first two quarters but what has raised hopes in some quarters is marginal increase in GFCF (gross fixed capital formation) as indicative of some private investment revival.
Taking the full year projection of GDP/GVA by CSO, agriculture growth is only at 3.0 per cent (6.3 per cent in previous year), mining and quarrying 3 per cent (13 per cent) Manufacturing 5.1 (7.9) and Construction 4.3 (1.3) per cent.  This segment rise is attributed to rise in cement production and consumption as well as increased steel use. In Services, Trade. Hotels etc and Finance, Real Estate are expected to surge over the previous year in the third advance estimate by end of May.
In the first three quarters (April-December) cumulative., GVA is placed at 6.2 per cent (7.5 per cent in corresponding period of 2016/17,   mining and quarrying 2.6 per cent (10.6) manufacturing  4.3 per cent (8.6) and Construction 3.7 per cent (3.2 per cent), private final consumption expenditure was marginally less, government consumption expenditure increased by 0.2 per cent and Gross Fixed Capital Formation 31.6 per cent of GDP compared to 31.4 per cent in corresponding nine months of 2016/17.  All told, the economy is yet to fully bottom out of its slump.  (IPA)

Monday, 19 March, 2018